TMI Blog2014 (2) TMI 612X X X X Extracts X X X X X X X X Extracts X X X X ..... advanced to Smt. Annapurna instead of disallowing at 18% on total outstanding - interest is to be disallowed proportionately on the amount advanced to Smt. Annapurna which bears to the total borrowings i.e., Total Interest Paid x Amount advanced to Smt. Annapurna Total amount borrowed – Decided partly in favour of Assessee. - ITA No. 401/Hyd/2013 - - - Dated:- 11-2-2014 - Shri Chandra Poojari And Shri Saktijit Dey,JJ. For the Appellant : Sri K. V. Chalamaiah For the Respondent : Smt. K. Harita ORDER Per Chandra Poojari, AM: This appeal by the assessee is directed against the order of the CIT(A)-VI, Hyderabad dated 10.12.2012 for A.Y. 2009-10. 2. The assessee raised the following grounds of appeal: 1. The ld. CIT(A) erred in law and on facts while sustaining addition of Rs. 10,00,000 out of total gifts of Rs. 14,60,000 received from Mrs. Subbayamma, mother of appellant, on the facts and in the circumstances of the case. 2. The ld. CIT(A) erred in law and on facts while sustaining addition of Rs. 6,47,883 being disallowance of interest paid on bank loan on the ground that the loan obtained from bank was utilised for personal use by appellant's wife, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed for gift deeds. It has been further contended that the donors are parents of assessee and both have explainable sources of income and capable of extending gifts as reflected in financial statements filed along with return of income filed by them. It was further contested by the assessee that AO cannot simply ignore the confirmations of gifts made by assessee's mother. In case of Dr. Sree Rama Murthy, the assessee's father, the net income declared for the A.Y. 2009- 10 is Rs. 4,20,461/- besides having opening debit balance of Rs. 3,46,096/- out of which gift of Rs. 3,00,000/-was given to the assessee, during the year under reference. 7. The CIT(A) observed that as per the information brought on record, the assessee a Medical Doctor running a Nursing Home at Warangal and during the year under reference, gifts to the extent of Rs. 17,60,000/- were obtained, with gifts of Rs. 14,60,000/- from Mrs. C. Subbayamma, the mother and Rs. 3,00,000/- from Mr. Sree Rama Murthy, father of assessee. As per the AO, gifts of Rs. 3,00,000/- from Dr. Sree Rama Murthy, with individual gifts of Rs. 1,00,000/- made on 09.01.2009 and Rs. 2,00,000/- on. 06.02.2009, were executed by gift deed No. 4782 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... donors are parents of the assessee who signed the confirmations for the gifts and there is no denial of this fact. In such a situation what is relevant to stressed 'upon is the creditworthiness of the donors and genuineness of the transactions. As could be seen from the gift deeds and as indicated, some of the gifts are posterior to the gift deeds and all the gifts are by cash, and as such there are reasons to raise doubts on the transactions. However, keeping the fact that donors are parents of assessee and having confirmed the transactions, the main reason for of disbelieving the gifts falls on the creditworthiness of the donors, rather than the identity of the donors and genuineness of the gifts. 10. The CIT(A) observed that in case of the gifts shown to have received from Dr. Sree Rama Murthy, the father of the assessee, the sources explained are for the income from his profession and for the year under reference, such income was shown to be above Rs. 4 lakhs apart from debit balances, carried from the earlier years which may explain the gifts of Rs. 3 lakhs, quite comfortably. In view of the above, the CIT(A) was inclined to accept the argument of the assessee that Dr. Sree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mad Hanif vs. CIT (50 ITR 1), wherein the ratio of decisions indicate that, when the source of a receipt cannot be-explained satisfactorily by the assessee, it is open to the revenue to hold that it is the income of the assessee and no further burden lies on the revenue to show that the income is from any particular source. 13. The CIT(A) observed that in the instant case, as regard to the sources for Mrs. C. Subbayamma, for making gifts of Rs. 14,60,000/- to the assessee, the explanation of the assessee was that sufficient documentary evidence in the form of valid returns of income were filed, to prove the sources and as such there is no justification to add back the gift. This argument is not tenable, for the simple reason that return of income filed by Mrs. Subbayamma is only for solitary year of AY 2009-10 along with the statement of affairs indicating the unproved/unverified credits or debits in the balance sheet/capital account furnished with a total income not exceeding Rs. 3.05 lakhs, cannot explain the gift of Rs. 14,60,000/-. Under the circumstances, it can be held that assessee could prove the credits to the maximum extent of Rs. 4,60,000/- with Rs. 3,00,000/- out of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. Accordingly, the addition is deleted. This ground is allowed. 16. The next ground is with regard to addition towards disallowance of interest on the funds diverted for non- business purposes of Rs. 6,47,883. 17. Facts of the issue, in brief, are that during the assessment proceedings it has been observed by the AO that there are debit balances in the name of Mrs. Annapurna, wife of the assessee, as per the books of account of the assessee, with borrowed funds diverted to her account. It was observed that such transfer of the funds among the year was at Rs. 22,00,255, in addition to the opening debit balance of Rs. 21,99,037. The closing balance, thus, was put at Rs. 43,99,292/-. After giving credit for the amounts of salary, rent for machinery, surgery charges etc. to the extent of Rs. 7,99,361/-, the net closing debit balances for the year under reference was calculated at Rs. 35,99,931/- on which the interest was calculated at Rs. 6,47,883/- and disallowed the same against the claim of expenditure under the head 'interest', amounting to Rs. 7,18,000/-. The interest was shown to have calculated at the rate of 13% as applied by bank on the loans granted to the assessee. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration, the assessee advanced an amount of Rs. 22,00,255 and there was also opening balance of Rs. 21,99,037. According to the AO, the total liability from Smt. Annapurna is at Rs. 43,99,292. The AO computed interest on the amount owed by the assessee to Smt. Annapurna of Rs. 7,99,361 as the net balance of Rs. 35,99,931. The AO computed interest at 18% p.a. on Rs. 35,99,351, computed disallowance of Rs. 6,47,883 u/s. 40A(2)(b) of the IT Act as the assessee has incurred interest liability at Rs. 7,18,000. In our opinion, the total interest liability incurred by the assessee in the assessment year under consideration is Rs. 7,18,000 on total borrowings. Accordingly, we direct the AO disallow proportionate interest as attributable to the amount advanced to Smt. Annapurna instead of disallowing at 18% on total outstanding of Rs. 35,99,931. In other words, interest is to be disallowed proportionately on the amount advanced to Smt. Annapurna which bears to the total borrowings i.e., Total Interest Paid x Amount advanced to Smt. Annapurna Total amount borrowed The AO shall disallow the interest as directed above. This ground is partly allowed. 20. In the result, appeal of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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